Summary Post on Education

This post summarizes some of my thoughts on why the Indian educational sector must be liberalized.

Liberalize the Education System or Fail.

These are some commonly agreed upon facts related to education. First, it is an investment and the benefits arise much after the costs have been paid. It therefore requires foresight and will, and also disposable resources. Second, it is a process which takes time. The time taken can be somewhat shortened if sufficient resources are available but it cannot be arbitrarily speeded up. Third, the level of education determines the future capacity to produce and be productive. Fourth, an appropriate education provides more benefits than it costs. Fifth, in our contemporary world of dynamism and rapid change, education is indispensable.

Those facts and many others like them hold both at the individual level and the collective level. An economy cannot prosper without an educated population in just the same way that an uneducated person cannot. One good predictor of the success of an economy – which generally means that it is able to meet the requirements of its population in terms of producing goods and services – is the level of education. By that measure, India’s historical and contemporary poor economic performance is understandable given that its educational system is extremely poor.

Why India has a flawed education system can be explained at least in part by recognizing that it was an instrument created by and for the benefit of its colonial rulers. By restricting education to only a select minority, they were able to control the economy more effectively. The colonial objective was to exploit the economy for extractive purposes and it was never development oriented, as is natural for a colonial government. But even after political independence, the objective of the government did not change. The institutions and processes established by the British served the narrow interests of the post-colonial rulers just fine and so the education system continued to be controlled by the state. It remains so today and unsurprisingly the system is dysfunctional at its core.

Universal primary education is guaranteed by the constitution of India but the system fails to deliver. The literacy rate is around 60 percent. India has the largest number of illiterates, around 400 million, in the world. That is, India has more illiterates than the combined population of the US and Mexico. Secondary school enrollment is around 25 percent and higher education only 8 percent of the relevant population. Furthermore, tertiary education is poor as only about one of four college graduates is employable.

Very few receive any vocational education. China has 500,000 vocational schools which train 60 million a year; India has only 12,000 vocational schools and graduates only 3 million students.

Hundreds of thousands of Indian students study abroad at an annual estimated cost of around US$ 1 billion. There are very few foreign students in India. India has around 27,000 foreign students. Compare that to tiny Singapore (population 5 million) which has 100,000 and Australia (population 22 million) which has 400,000 foreign students.

The public expenditure by the center and state governments is of the order of Rs 100,000 crores which is around 3.5 percent of GDP. What explains the dismal failure of the education system? One possible explanation is the license permit quota control raj.

Briefly, the government bureaucracy has a monopolistic hold on the Indian educational system. Monopolies maximize profits by restricting quantities so that the prices people are forced to pay are much higher than the costs. The established rules and regulations do not allow the supply of educational services (through schools and colleges) to expand to meet the demand. The excess profits are siphoned off by the politically connected. The presence of these excess profits acts as a powerful deterrent against the liberalization of the education system.

Aside from the profit motive, there is another very powerful reason why the supply is kept limited. Where there are shortages, political fortunes can be made by rationing out the limited supply to groups in exchange for their patronage. This is what reservations based on caste and religious lines achieve.

The general solution to much of India’s educational problem is to liberalize the sector so that the market is free to adjust its supply to meet the demand. The government must be fully out of the education business; its role must be restricted to regulating the sector. As in all other markets, the educational market will also have its share of market failures. Correcting for these market failures will be the job of the regulator. The regulator must be independent of the government.

The foreseeable market failures can be dealt with simply and cheaply. First consider primary education. Very poor people cannot afford to pay market prices for primary education. They need financial support. This can be delivered via vouchers that allow them to choose among various supplier of primary education. Once universal primary education has been ensured, the same method can be used for secondary education. And as for tertiary education, it should be entirely merit based. That is, if everyone has had an equal opportunity to be educated to the secondary level, they can compete for entry into tertiary education.

Tertiary education should be priced at full cost. Those who are eligible for tertiary education but are credit constrained, the role of the government would be to create the credit market for such students to be able to borrow what is required. This not only helps those who need the help but also does not subsidize those who can afford to pay. In the current system, the rich benefit more. They are able to afford a good education up to the secondary level and then are able to compete for the limited seats in tertiary education and often are the only ones who enjoy the subsidies in tertiary education.

When a way of doing something for decades does not work, it is reasonable to consider alternatives. The market and for profit entities have been barred from participating in the education sector. This needs to change. We do know that markets deliver a wide range of goods and services quite efficiently. There is no reason to believe that education as a service cannot be as effectively and efficiently delivered by the market. And where there are obvious market failures, the solutions are well known and can be implemented without difficulty. It is time for a different way of approaching the problem.

[For more on education related posts on this blog, see the education category.]

Author: Atanu Dey


8 thoughts on “Summary Post on Education”

  1. Atanu,

    When you have some time, could you also do a post (or a series of posts) on *how* this liberalization should be carried out? A plan of action, sort of.


  2. I am new to this blog and I have been involved in trying to do some work in technical education – not for money, all the service is free – and have been interacting and working extensively with the technical education system since we require a large number of engineers for our organization. As I understand it, there is a massive vested interest in maintaining status quo in education. I was extremely surprised to learn that the Human Resources department controls the maximum amount of funds (approximately 26000 crores -see India today about performance of ministries of a few months back) Almost this entire amount is spent on institutions and activities which is not visible in any meaningful way to the educated public – for example, if you have a bridge collapse or if the expenditure in any other high spending department is completely wasted, the effects are far more visible than for example a bad government school or a bad college but any success is disproportionately highly visible e.g IITs – and the entire “middle-class plus” population depends on an alternative system which is financed outside of this system.

    The government retains control of the alternative system through a “gating” process which enables a beautiful coexistence with complementary systems like the “missionary education mafia” so the only decent alternative is the missionary school system (the madrassa system of course is worse) and does not permit other systems to come in in the regular stream.

    This has taken a long while to even partly unravel (ex. some non missionary good schools, some good private colleges which depend on very large donations and very determined actions to establish and maintain since non minority institutions are difficult to establish)

    So here we have the problem:
    The public (read government) education system is actively undermined. The private systems are either very expensive to run or controlled by mafias and there is every reason for the bureaucracy to maintain status quo – I have not even come to the syllabus and regulation aspects.

    According to me the only way this will break or slowly dissolve is when there is much more prosperity – more people can afford private education, more private parties can set up charitable institutions because they are rich and/or more private employers build supplementary systems (this has been tried with some limited success in the IT area) or if there is some disruptive technology.

    So though this may sound pessimistic, my feeling is that improvement in education will lag prosperity growth till the demand for educated people reaches a threshold level.

    Sorry for the long post. This is something I feel strongly about and am frustrated about.


  3. The public expenditure by the center and state governments is of the order of Rs 100,000 crores which is around 3.5 percent of GDP

    Just for my understanding :::

    Can the RTI be used to determine where and how the funds were used – to drill down – the distribution of funds?.

    I had a look at the Ministry of HRD site :

    But this just talks of the schemes and the targets set by the Govt. Can you post your understanding on the existing schemes that are already under implementation?.


  4. I think privatisation will improve the situation but it will not be enough. It is very difficult to break away from the existing structure soon. But we absolutely need administrative reforms like measuring ends instead of means; link teachers’ performance to student learning; employ more local teachers in rural areas etc.

    We have already seen the impact of newly privatised engg/medical colleges; which are mainly run by politicians. Some of them are better; but most of them are not anyway better than existing govt run colleges.

    I can say about US. Schools are run by counties and many of them are quite decent. I am sure it is the case in almost all developed world. So, why can’t we learn about governance from these and improve the existing education system?


  5. Atanu,

    The idea of liberalising education is unlikely to materialise from within the system. If only some “right” things occur and scale up before the jaggernaut notices it – somewhat like the mobile phones phenomena! Have been pondering over the idea of inviting the senior citizens to donate their time, effort and experience to fill in the gap for school teaching … enhancing local language capabilities from within by writing books etc. Still have no idea to scale up 😦 😦 :(. Any suggestions?

    – Abhijat


  6. I think we fail to recognize that our societies are fundamentally built based on exploitation and greed. At the top are the minority rulers followed by quite a few intellectuals and finally the very large common people. It is in the best interest of the rulers to maintain the status quo and it is in the best interest of the intellectual and educated community to be on the side of the rulers and together these two groups exploit the common people.
    This naturally follows that the education to the elite rulers would be very different from the education to the common folks. A few intelligent and bright among the common folks are recognized and filtered through our education system and they go on to serve the masters.

    The elite education is geared toward how to act elite and how to control and lead the common folks.
    The education to the common people is geared to teach obedience and conformity and so basic skills to work in a factory or office.They are deliberately dumbed down in the fear that they will revolt against the system.
    This is probably the reason why a student is punished for coming late to class or for speaking in the class and not punished or concerned when he scores average marks.
    This is not only true in India but it is universal and it is also seen in America and elsewhere.

    Governments cannot solve this problem because they follow the edicts of the world bank and the IMF.These institutions force governments to implement structural adjustments in return for loans and thus money for programs like education and health are forced to be cut.Since these intellectuals in government by design serve their masters they obediently comply and in return get some goodies.

    Private enterprises cannot solve this problem because it is not in their best interest either. Education in India and elsewhere is increasingly becoming just vocational training. One of the reasons for this I think is the increased influence of private enterprises on government educational policies. Industries need people with specialized skills and so they need engineers, doctors,technicians,financial consultants etc. and not people who can think independently,creatively and who can question and who cannot put up with all these exploitations.These independent and creative thinkers are recognized and filtered out by our educational system from a very early stage.

    What we need is a totally different kind of society which is not based on exploitation and which is not class based and this society will create systems which will work for the common good of the people.


  7. Thanx fr the ID..
    Now I’m not intellectually inclined and usually boast about reading ur blog to create an impression… but i was wondering if your post on GPM and SPM was comparable to Howard Roark vs. Peter Keating sort of thing?!?


  8. I support the idea of liberalization of education in India. However, one of the the eventual beneficiaries of the reform will be private and public sectors. The private industries that run research and development organizations, which need bright talent also have shared responsibility to support the education system, as a part of corporate social responsibility.


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